When Does An Order Become A Binding Precedent? Supreme Court Explains

The Supreme Court observed that its brief orders that are meant only for the purpose of closure of the controversy involved in a particular case and with a view to conclude the case, cannot act as a precedent for subsequent cases.

The bench of Justices BV Nagarathna and PK Mishra made this observation while dealing with a contention raised in a batch of appeals that the judgment in Bangalore Club vs. Commissioner of Income Tax, (2013) 5 SCC 509 has to be reconsidered in view of the earlier order in Commissioner of Income Tax vs. M/s Cawnpore Club Ltd., Kanpur (“Cawnpore Club”) (2004) 140 Taxman 378 (SC).

The court made the following observations regarding the concept of ratio decidendi and binding

1. What is binding in terms of Article 141 of the Constitution is the ratio of the judgment and as already noted, the ratio decidendi of a judgment is the reason assigned in support of the conclusion.
2. The reasoning of a judgment can be discerned only upon reading of a judgment in its entirety and the same has to be culled out thereafter. The ratio of the case has to be deduced from the facts involved in the case and the particular provision(s) of law which the court has applied or interpreted and the decision has to be read in the context of the particular statutory provisions involved in the matter.
3. An order made merely to dispose of the case cannot have the value or effect of a binding precedent.
4. Although the obiter dictum of the Supreme Court is binding on all courts, it has only persuasive authority as far as the Supreme Court itself is concerned.
5. The decision is an authority for what is specifically decides and not what can logically be deduced therefrom.
6. The precedential value of an order of the Supreme Court which is not preceded by a detailed judgment would be lacking inasmuch as an issue would not have been categorically dealt with.
7. Declaration of the law by the Supreme Court can be said to have been made only when it is contained in a speaking order, either expressly or by necessary implication and not by dismissal in limine.
8. The precedential value of an order of the Supreme Court which is not preceded by a detailed judgment would be lacking inasmuch as an issue would not have been categorically dealt with order is binding on the parties to the said order, but in our view, it cannot act as a precedent for subsequent cases such as the present one with which we are dealing.

9. If an order of this Court is brief and meant only for the purpose of closure of the controversy involved in a particular case and with a view to conclude the case, undoubtedly, such an order is binding on the parties to the said order, but in our view, it cannot act as a precedent for subsequent cases such as the present one with which we are dealing.

The court noted that the judgment in Cawnpore Club is not on the basis of any reasoning or a deduction made as to whether on the interest earned on fixed deposits made by a club in a bank, income tax would be attracted or not.

"In the absence of any deduction or reasoning  or analysis, the said order cannot carry precedential value so as to be binding on this Court in a subsequent case. This is because there is no discernable ratio decidendi in the said Order. Of course, the said Order would bind the parties to the case. While carefully reading the Order passed by this Court in Cawnpore Club, it can be discerned that the High Court had clearly spelt out that in the case of income earned from letting out of rooms/property to its members, the same would not be subjected to tax... In the absence of there being any clear indication in the discussion or analysis and there being a simple closure of a case, it would clearly imply that the doctrine of mutuality would apply only to those activities to which it would normally apply. That is different from saying that even in the case of income earned by a club from non-members or income earned from investment made by a club in fixed deposits in a bank would attract the principle of mutuality and therefore, no tax is payable."

Also Read- 'Not Everything Said In A Judgment Constitutes A Precedent' : Supreme Court Explains Distinction Between Obiter Dicta & Ratio Decidendi

Secunderabad Club vs CIT | 2023 LiveLaw (SC)  |  2023 INSC 736

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